Navigating retirement with confidence: The bucketing strategy

Vince Lecce and Mathew Bound//October 9, 2025//

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Transitioning into retirement brings unique challenges, from fighting our natural instincts of mental accounting, overzealous market return expectations, or coveting a conservative portfolio short of beating inflation to meet goals. Portfolios are often allocated among equities, bonds, and cash in a way that balances the need for current income and the desire for future growth. This is often a unified approach.

Another approach seeks to divide assets into several “buckets.” The bucket concept is based upon this: Assets needed to fund near-term living expenses should remain in cash or low-yielding assets and assets that won’t be needed for several years can be held in a diversified portfolio of longer-term holdings. The cash buffer can provide the peace of mind to ride out periodic downturns that occur in the long-term portfolio. Doing so can help mitigate the sequence of return risk that can often derail financial plans from having to liquidate investment assets at inopportune times such as having to sell riskier assets that might have gone down in value to fund near-term living expenses, instead of allowing them to potentially rebound.

Retirement planning is more than just saving — it’s about creating a strategy that ensures peace of mind and financial stability throughout life’s next chapter. Utilizing the bucketing strategy can help organize retirement assets into distinct categories based on time horizon and liquidity needs.

What is the bucketing strategy?

The bucketing strategy divides retirement assets into three primary “buckets,” each designed to meet different phases of retirement spending:

Bucket 1: Liquidity

Purpose: This bucket provides the utility needed for daily spending/emergencies. It allows you to thrive through unstable markets. One might also consider including an emergency fund within this bucket to defray unanticipated expenses.
Investments: Low-risk and highly liquid assets.
Goal: Preserve capital and ensure quick access to cash. Funding amount is equivalent to 6 months to two years of expenses depending on life stage.

Bucket 2: Core/Lifestyle

Purpose: Asset accumulation to support future lifestyle spending needs.
Investments: Moderate-risk, income-generating assets to meet mid- to long-term goals. This could include high quality fixed income, high-quality dividend-paying equities, or a balanced portfolio of holdings.
Goal: Generate stable income and/ or growth to outpace inflation without high volatility. This bucket will be funding most of your lifetime spending goals. This bucket can be used to refill the Liquidity bucket as those assets are depleted.

Bucket 3: Growth/Surplus

Purpose: You have a high degree of confidence your assets within the first two buckets will cover all your needs. This bucket is for long-term growth and gives you the flexibility to have a greater impact on loved ones or organizations you can chose to support. It can be used to potentially leave a legacy.
Investments: Growth-oriented stocks and bonds, accepting short-term volatility for long-term growth. More aggressive assets with risk tolerance that can ride out market ups and downs.
Goal: Assets will be invested differently today to impact your beneficiaries and future legacy with estate planning. Alternatively, you can help beneficiaries immediately by gifting assets during your lifetime.

Why bucketing works

The bucketing strategy offers several advantages:

Emotional Comfort: By clearly segmenting assets, retirees can better understand where their money is coming from and feel more secure during market downturns.
Strategic Withdrawals: It enables a disciplined approach to withdrawals, reducing the likelihood of selling long-term investments during market lows.
Inflation Protection: With a portion of assets invested for growth, retirees can better manage inflation risk over time.

Implementing the strategy

Implementing the bucket approach effectively requires careful planning and ongoing attention to detail. Financial professionals begin by working closely with retirees to thoroughly assess their unique retirement goals, anticipated spending patterns, and risk tolerance. With this foundation, assets are strategically allocated across the different buckets to align with immediate needs, intermediate objectives, and long-term growth aspirations. Regular monitoring and review are essential components of the process, as both market conditions and personal circumstances can change over time. Adjustments to allocations may be necessary to maintain the integrity of each bucket, ensuring that funds are available when needed while optimizing growth opportunities.

Key takeaways

The customizable bucket strategy provides a practical framework for aligning assets with specific time-based goals, helping retirees manage market volatility and personal changes with greater resilience. This approach can limit the risk of selling investments at a loss and offers flexibility to adjust as conditions shift. However, it’s important to be aware of potential drawbacks, such as the risk of overly complex allocations and the possibility of lower long-term returns. With careful planning, regular review, and integration of professional financial advice, retirees can use the bucket strategy to support an adaptable and sustainable retirement income plan.

Vince Lecce, CIMA®, CWS®, is KeyBank Rochester Market President and Team Leader for Key Private Bank in Rochester. He can be reached at (585) 238-4107 or [email protected].

Mathew Bound, CFP®, is Regional Director of Planning and Investments for Key Private Client. He can be reached at (513) 234-4437 or [email protected].

The Key Wealth Institute is comprised of financial professionals representing KeyBank National Association (KeyBank) and certain affiliates, such as Key Investment Services LLC (KIS) and KeyCorp Insurance Agency USA Inc. (KIA).

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